Resolving the Debt Ceiling and Spending Cuts Will Help the Economy

Posted on January 15, 2013, 4:36 am

Economic revival and job growth continue at a moderate pace in the fourth year of the recovery from the Great Recession of 2007–2009. The economy and the labor market are being held back in part by the uncertainty over what will happen to the federal government’s debt ceiling—the amount the federal government can borrow without Congress’s approval—and to the already-enacted automatic spending cuts now set to begin in March 2013.

The fact that the economy is still growing amid this uncertainty shows the tremendous resilience of the recovery created by the smart, targeted economic policies of the past few years. The resolution of the fiscal showdown, which prevented the onset of massive tax increases and spending cuts on January 1 and 2 of this year continued this approach at least in part by extending long-term unemployment insurance benefits. More needs to be done, however, as the federal government approaches the debt ceiling in February and as already-enacted automatic cuts to defense and nondefense programs are set to start on March 1, 2013, unless Congress enacts new legislation to ease the fiscal burden on the economy.

There is hope for the economy and the labor market. Policymakers have already resolved part of the fiscal dilemma by avoiding the immediate onslaught of tax increases and spending cuts in early January 2013. Another resolution to the remaining fiscal issues—the debt ceiling and spending cuts—will likely boost growth and job creation by creating economic certainty for businesses and consumers, particularly if done quickly.